Why valuations are key

ON EUROPE

The MSCI Pan-Europe index was up 14.2% for 2012, but the rebound from the lows at the beginning of June was closer to 20%.

This year has started positively, but some investors justifiably question how far European equity markets can continue to rise. While it was perhaps easy at the time to scoff at the media’s use of superlatives, it is clear now that Draghi‘s speech last summer was a major catalyst in reducing tail risk in European markets. Since then, investors have started to look beyond the risk-on/risk-off trade. The obvious negatives that were around a year ago are not there anymore: the risk of any country leaving the euro now seems to have receded, the US is recovering, Japan is being more proact...